Don’t miss out on the lowest equity release interest rates of all time!
Equity release schemes are fantastic financial products, but you could end up in trouble if you aren’t aware of what you can equity with the interest rate’s you’ll pay.
Luckily, we’re here to break things down for you.
Are you wondering why low interest rates are so important? We’ll help you discover:
- If you’re already an equity release plan holder but could be paying less.
- The importance of low interest rates and how these will impact your family.
- How to get the lowest possible rates on the market.
- What will affects the rates you’ll achieve.
Our team of experts has studied over 220 equity release plans by more than 28 plan providers, and we’ve carried out an in-depth analysis of equity release interest rates in 2021. Are you interest to know what we found?
Continue reading to find out!
What’s Equity Release?
Equity release is a financial arrangement that allows older homeowners to release the cash tied up in their property, while allowing them to remain living in there for the rest of their lives.
The 2 most common types of equity release is a lifetime mortgage and a home reversion scheme, and most plans are available to homeowners aged 55 or more.
If you released equity before 2020, you’re likely paying more than you need to. If you’re on an older plan please read our article on ‘Switching Equity Release Plans‘.
How Does Equity Release Work?
An equity release mortgage works by the homeowner’s primary residence being collateral against the loan.
You’ll first need to use the money to pay off your existing mortgage and then the balance of tax-free cash can be used in any way you wish.
While you can opt for a plan with partial repayments, you’re not obligated to make any repayments in your lifetime. Instead, the loan, plus compound interest charged is usually repaid from the sale of your home when you pass away or enter long-term care.
Here’s more: What is Equity Release & How Does It Work?
Equity Release Types
There are 2 main equity release products available to you, a lifetime mortgage and a home reversion scheme. Both financial services1 give you the option to release tax-free cash in a lump sum, drawdown, a combination of the 2, or a monthly salary, but there are some key differences.
A lifetime mortgage is a loan secured against your primary residence that allows you to unlock tax-free cash, without an obligation of repaying any of the loan or interest in your lifetime.
With lifetime mortgages, you’ll still retain 100% of your property.
Full article: What’s a Lifetime Mortgage?
Home Reversion Schemes
A home reversion plan is an equity release product that involves selling all or a part of your property under market value, in exchange for tax-free2 cash. Your equity release provider will allow you to stay in your home, rent-free, until you die or enter long-term care. Equity release lenders receive their share of the home value when your property is sold at the end of your loan.
Take note: Both lifetime mortgages and home reversions are regulated by the Equity Release Council.
Full article: What’s a Home Reversion Scheme?
What Are the Jan 2022 Interest Rates?
Equity Release Loan-to-Value Table
|Age of the Youngest Homeowner||Standard Equity Release||Enhanced Lifetime Mortgage|
What Rates Could I Obtain with a Lifetime Mortgage?
The interest rates you can achieve on a lifetime mortgage will be anything from 2.3% to 6%. The rates you can achieve will depend on your age, the value of your property and the condition of your health.
An equity release adviser will provide independent financial advice to help you find a plan with the lowest equity release interest rates possible.
Our FREE equity release calculator will help you determine the amount of cash that’s tied into your home. Try it here!
Discover more:Lifetime Mortgage Interest Rates in Jan 2022
Equity Release Interest Rates Case Studies
Case Study #1 – Couple aged 80 and 82
Property Value: £255 000.00 Client Information: Clients live in a flat and have no serious health issues. The Recommended Plan
- Lender: Just.
- Release: £123 760 + £6 288 cashback
- Interest Rates: 5.60% MER (5.75% AER)
- Lender Fees: £0 upfront & £0 completion
Case Study #2 – Single Retiree Aged 61
- Property Value: £640 000
- Client Information: The client lives in a house and has a life-threatening illness
The Recommended Plan
- Lender: more2life
- Release Approximately: £331 500
- Interest Rates: Roughly 3.12% MER (3.16% AER)
- Lender Fees: £0 upfront & £0 on completion
Case Study #3: Couple Aged 67 and 77
- Property Value: £551 000
- Property Type: Freestanding house
The Recommended Plan
- Lender Aviva
- Release Approximately £203 500
- Interest Rates: Roughly 3.51% MER (3.57% AER)
- Lender Fees: £0 upfront & £5 on completion
The Lowest Equity Release Rates Available in Jan 2022
The question is, how low can you go? Check these out!
- Pure Retirement 2.32%
- Legal & General 2.3%
- More 2 Life 2.9%
- Aviva 3.3%
Some of these lenders even have plans that include fantastic features like a free valuation. Such features can significantly lower your equity release costs!
How Equity Release Providers Determine Your Interest Rates
The rates you can achieve and how much cash you can unlock are vastly determined by your personal circumstances, including the value of your property, the age of the youngest homeowner, and the condition of your health.
Here’s more details!
1. Loan Amount & Property Value
The amount of equity you can release will first be based on the loan value that you select. The higher the amount you unlock, the lower the interest that you’re likely to achieve. Furthermore, when releasing equity, your home will go through a detailed valuation which will determine how much you can unlock and the equity release interest rates you can achieve.
2. Your Age
Your age plays a big part in the amount of equity you can release from your home through a lifetime mortgage and home reversion equity release scheme. The older you are, the more you are likely to be able to release. You’re also likely to qualify for lower interest rates with lifetime mortgages.
3. The Condition of Your Health
This is where an enhanced equity release plan comes into play. If you’re suffering from a life-threatening or severe illness, you’ll likely qualify for a plan that provides low interest rates to such individuals. You’ll need to fill out a form explaining your poor health. Several diseases qualify, including:
- Heart conditions
If you think you qualify, ask your financial adviser about enhanced equity release plans. Should you wish to, you can use your cash released to pay for advanced medical care.
4. Product Features
Not all plans are created equally. It’s vital to study the small print, lending criteria and features of the different plans you’re considering. The plan provider will need to approve your property and personal details, so you might not have every single plan to choose from. However, always select a plan that comes with a ‘no negative equity guarantee’.3
Furthermore, you’ll need to decide which plan you want to select, with the most popular being a drawdown lifetime mortgage. Look out for additional features, like a reserve facility or inheritance protection. With these, you’ll pay a premium that could come with higher interest rates. It’s up to you, along with the guidance of your financial adviser, to weigh out these pros and cons.
5. Your Marital Status
Did you know that some lenders won’t allow you to unlock equity as an individual if you’re part of a couple? You can request a joint equity release if this suits you best. If you can, you might want to consider the oldest partner to release equity as an individual.
However, what’s great about a joint plan is that both parties can stay in the home until they pass away or move into long-term care. The equity release provider will consider the age of the youngest homeowner when working out your interest rates.
6. Potentially Your Credit History
In most cases, your credit history won’t impact your equity release plan, and some lenders won’t even request to do a credit check. This is because the loan is purely determined by the value of your asset (AKA your home), and you don’t need to pay back the loan in your lifetime.
A past County Court Judgment4 or insolvency might deter certain lenders, but you should still be able to find plan options to qualify for an equity release scheme. However, you may have to pay a higher interest rate.
Pro Tip: You can use your equity release money as a means to pay off your debt without having to sell your beloved home!
Understanding AER vs MER
Interest rates are quoted in 2 ways, AER vs MER. What’s the difference?
MER – Monthly Equivalent Rate
The MER is the rate calculated over the year and then divided monthly. It generally works out to be lower than the AER.
AER – Annual Equivalent Rate
The AER is calculated over a year. These rates are accumulated annually or monthly, and then the balance owed will be paid from the sale of your house when you pass away or move into permanent care.
Fixed vs Variable Interest Rates
Equity release interest rates can come in 2 forms: fixed and variable. Fixed interest rates are determined at the start of your plan and remain the same until it comes to an end. Variable interest rates can increase and are usually in line with the Consumer Price Index (CPI).
As per the Equity Release Council’s ruling, variable rates must have a cap and, therefore, cannot inflate disproportionately.
Historical Shifts in Equity Release Interest Rates
Before the Equity Release Council’s formation in 1991, the market was fraught with dubious lenders who took advantage of older folks, leaving some crippled with debt.
However, the industry is now regulated by the ERC and the Financial Conduct Authority (FCA), with most plans appearing on the financial services register. While equity release interest rates were exorbitant in the past, they’re now competitive when compared to rates of standard mortgages.
Full Article: What is the Equity Release Council?
How Much Does Equity Release Cost?
As well as the interest rate, there are additional costs associated with equity release deals. These might cost anything from £1,500 to £3,000 in total, depending on the providers you use and the plan you select. These costs will cover.
- Solicitor fees
- Arrangement fees
- Valuation fees
- Advice fees
In addition, you can expect an early repayment charge if you end your plan early.
DISCOVER MORE: Equity Release Costs
Who Can Help Me Find the Best Available Equity Release Interest Rates?
In order to find the best rates available for you, you must seek the advice of an independent financial adviser. Whole market advisers will have a holistic understanding of the entire equity release landscape, including current interest rates.
What Are the Lowest Possible Rates in 2021?
Record-breaking low rates between 2.3 and 2.6 have been available in 2021.
Will I Need to Make Monthly Interest Repayments With Equity Release?
When it comes to releasing equity from your home, you are not obligated to make any interest repayments.
You can do so if you wish to, reducing the amount of interest that’s compounded and paid back when you pass away or move into permanent care.
While releasing equity from your home can be a life-changing decision, your family can be left with little to no inheritance if your interest rates are too high. With interest rates currently at a historic low, now is the best time to release equity from your home.
With an ever-shifting economy, who knows where these figures will go in the future. Seek guidance from your independent financial adviser and shop around at various plan providers to find the lowest equity release rates available for you and your family. Finally, look at each plan holistically to ensure you’ve made the correct decision.